
Selling (out) to a customer
On startup culture, attention from the FTC, and why a customer might end up being a buyer of more than just an order
Part of the appeal of America's small-business ecosystem is that it is very easy for anyone to hang a shingle and start offering goods and services. This vibrancy is one of the country's most powerful economic tools: Americans like to discover a need, then make a buck by satisfying it.
â– But that vibrancy also leaves us perhaps unusually under-skilled at disposing of businesses at natural turning points. When the law makes it easy to start a new firm (as it should) and the culture celebrates the founding entrepreneur (as it does), that can have the effect of limiting the attention paid to how a firm might change hands. In Michael Bloomberg's words, "My operating principle has always been build, don't buy."
â– Lots of people find reasons to wind down their companies (or at least their ownership thereof), whether for retirement or to satisfy non-compete agreements or merely because something more interesting came along. Too few of them follow a simple piece of advice: If you're looking to wind down a business, make sure your exit strategy includes calling a couple of your customers to offer them a chance to buy you out.
â– Those customers would have to be trustworthy, of course -- the last thing an owner might want to do while looking to sell out is to start a panic among existing customers, depleting the valuable book of incoming orders at just the time when that book might be of greatest use in helping to justify a high sales price.
â– But a trusted customer might well be willing to acquire the means of producing something valuable to them at a good or even premium price, especially if it permits them to avoid the disruption that comes with watching an important supplier go through a painful process of being consolidated, merged, or otherwise placed under new management.
â– Monopolistic behaviors get a bad name generally, but even if the Federal Trade Commission is sometimes hostile to vertical integration, lots of real-world good can come from helping a customer to "bring certain capabilities in-house", as such a purchase might euphemistically be described.
â– And it could well be the case that the employees of the firm being sold would find themselves better off as the new co-workers of their established clients than to become the latest "portfolio company" of an unrelated and disinterested investor group (or, perhaps worse, to be acquired and eventually closed by a rival). In selling to a good customer, the exiting company may have at least some confidence that the new owners will value stability and continuity more than most buyers.
â– There's no one right way to get out of a business any more than there is one right way to get in. But the worst outcome may very well be for a company to simply cease operations without giving any clients the chance to salvage the operation, leaving customers without a supplier, employees without continued employment, and the exiting owners without anything to show for their efforts.